2011: Malta’s economy grows despite euro crisis
Despite the eurozone crisis Malta’s economic growth this year is expected to be in the region of between 2.3 per cent and 2.5 per cent, considerably higher than the 1.4 per cent to 1.8 per cent forecast for the single currency bloc. Malta’s unemployment rate, at around six per cent, is also substantially lower than the eurozone average of 10.3 per cent or the EU average of 9.8 per cent.
In the first three quarters of 2011 Malta recorded economic growth of 2.3 per cent, 2.8 per cent and 2.2 per cent respectively. In contrast the eurozone witnessed only 0.2 per cent in the third quarter while the EU’s economic growth increased by 0.3 per cent during this period.
Malta’s deficit for 2011 is estimated at 2.8 per cent of GDP, while the country’s public debt for 2011 is projected to be 70.15 per cent of GDP. The latter figure is still way above the Maastricht threshold of 60 per cent of GDP, but is considerably lower than the majority of EU states.
The eurozone crisis did not spread to Malta – the country’s deficit seems to be well under control and the government never had any problems raising capital from the market – but the crisis dominated the EU’s agenda and both Finance Minister Tonio Fenech and Prime Minister Lawrence Gonzi attended a numbers of summits and Council meetings specifically to tackle this question.
However, as the eurozone is bound to enter recession next year this will undoubtedly affect Malta’s economy, especially its tourism and exports sector. Moody’s in fact decided to reclassify Malta from A1 to A2, something which Mr Fenech described as “understandable” when one considers the economic situation in Europe, particularly the fact that some countries are going through a crisis.
“The agency emphasised that the reclassification was not for lack of effort by Malta to address the economic crisis. Rather, Moody’s said Malta dealt with the 2009 crisis well and the impact was small. But because of what is happening in the rest of the world and because our economy is small and open, there will be an impact on Malta’s economy,” Mr Fenech told The Times Business.
Malta pushed for deeper economic integration and co-ordination within the eurozone but Finance Minister Tonio Fenech made it clear in an interview with The Times Business – just before the crucial EU summit earlier this month – that while Malta understood the basic thrust of what Germany and France wanted to achieve in the area of greater economic integration, eurozone members that act responsibly should not have the same conditions imposed on them as those who do not.
Malta (and the UK) continued to oppose a Financial Transaction tax – proposed by the European Commission and backed by France and Germany – and the tax was omitted from the final accord reached at the December summit.
Mr Fenech also made it clear that the government had no contingency plans for the possible break-up of the eurozone. He told The Times Business: “I think it is wrong to start debating the break-up of the currency. Such talk causes damage. The impact on the world economy and the European project as a whole of such a breakup would be so large that I am sure every EU member state is committed to ensure that the euro does not fail.”
November’s Budget was characterised by tax cuts worth €10 million for working parents who will be able to save up to €420 each a year in tax. The new “parent computation” tax category will be eligible for working parents supporting children who do not work up to the age of 18. If the children are still studying at tertiary level, this age limit is extended to 21.
The tax cuts were aimed at making the labour market more attractive for parents. The government said it was “constrained” by the enormous crisis in the eurozone and was not in a position to implement its electoral pledge of reducing the top income tax rate from 35 per cent to 25 per cent, which would cost €40 million.
In other Budget measures a weekly cost of living increase of €4.66 was given, the minimum rate for children’s allowance was increased from €250 to €350 for every child, the €35 TV licence was abolished and a grant of €300 per year to pensioners over 80 who live independently in their own home was announced.
In the health and education sectors colorectal screening is to be introduced and an increase in aid to parents of private school pupils through an extension of tax credits was announced. The budget for industry was increased to €14.2 million while the Malta Tourism Authority was allocated an additional €1 million.
Malta was very much involved in the Libyan crisis in its backyard and Prime Minister Lawrence Gonzi handled a difficult situation very well. He was not afraid to take risks and had the courage to denounce the atrocities being perpetrated by the Gaddafi regime at an early stage of the conflict when the outcome was not yet clear. In fact the Prime Minister made it clear way back in March that Gaddafi’s exit was “inevitable”.
Throughout the crisis Malta served as a hub for the evacuation of foreign nationals from Libya, provided humanitarian and medical assistance to Libya, granted asylum to two Libyan Air Force pilots who defected after being ordered to bomb protesters, refused to return the pilots’ jets to the Gaddafi regime, allowed Nato jets implementing the UN-sanctioned no-fly zone to land in Malta whenever necessary and exchanged intelligence on the Libyan conflict with Nato.
Maltese businesses had millions of euros invested in Libya, Libya had millions of euros in assets Malta (which were frozen by the EU and UN as the conflict erupted) and a leading Maltese company, the Corinthia Group, is half owned by Libyan shareholders, so the Libyan revolution presented quite a challenge for Maltese economic interests. However, both the government and the Maltese business community made it clear they were confident Malta could build strong commercial links with the new Libya, especially since the country’s Transitional National Council was very grateful to Malta for the role it played in this conflict.
Malta’s Tripoli embassy has since become operational again, the Benghazi liaison office – a recognition of the commercial importance of Libya’s second largest city, where the revolution was born – is to remain open, and Air Malta has resumed flights to the capital. Dr Gonzi, Dr Fenech and Foreign Minister Tonio Borg have all visited Libya since the overthrow of the Gaddafi regime.
Although the situation in Libya is still fluid it is believed Maltese businesses have managed to re-enter the Libyan market and that the possibility of stronger Libyan-Maltese business links is huge. GRTU director Vince Farrugia had told The Times Business that Libya has the potential to be the “Dubai of the Mediterranean”.
Mr Farrugia had said: “There are huge business opportunities in the new Libya and many opportunities for Maltese businesses there. Malta is bursting with entrepreneurs and the size of our market makes it necessary for us to look beyond our shores for business growth. The new Libya presents us with an excellent opportunity to help rebuild the country.”
In other developments the MFSA fined Bank of Valletta €347,816 for regulatory breaches over the La Valette Property Fund while nearly all the 2,100 investors in the fund accepted BoV’s compensation offer worth a total of €15 million. The bank announced that it made a pre-tax profit of €64.4 million in its financial year up to 30 September – down from €98.9 million the previous year.
Air Malta continued to make headline news in 2011 with chairman Louis Farrugia announcing that the national airline’s operating losses are expected to mirror last year’s figures – in the region of €37 million – despite a €12 million hike in fuel prices, and according to him this “reflects encouraging trends”. Air Malta also announced voluntary redundancy and early retirement schemes and plans to shed about 500 of its 1,200 workers in a wide-ranging restructuring exercise.
Other news in 2011 included long-awaited legislation regulating eco-contribution refunds – much to the delight of the Chamber of Commerce, the loss of €120 million by 120 Maltese investors in a failed Denmark-based currency trading scheme, the opening of the Corinthia Hotel London, the €2.7 million rights issue by 6pm Holdings plc and the introduction of the SME micro-credit scheme – almost 18 months after it was announced in the 2009 Budget speech.
Earlier this month Go plc said it was is following developments at Greek company Forthnet and will continue to protect its own and its shareholders’ interests following an announcement on the Malta Stock Exchange explaining why the Athens Stock Exchange had put Forthnet’s shares “under surveillance”. Go and its majority shareholder Emirates International Telecommunications (Malta) Ltd are joint shareholders in the Forgendo vehicle which holds 41.27 per cent of Forthnet’s share capital. Go has directed €119.7 million to Forgendo in relation to Forthnet over the years but the carrying amount of Go’s exposure to Forgendo as at June 30 stood at €41.1 million.
According to the International Data Corporation software piracy in Malta is worth $7 million, Corinthia said it planned an IPO to purchase hotels in Rome and Paris, pension reform was absent from the national agenda, CBM Governor Michael Bonello stepped down after 12 years at the helm, Spanish insurance giant Mapfre became a majority shareholder in Middlesea, Melita Mobile got a €8.5 million injection and three prominent industry CEOs warned that rising costs in Malta threatened future investment.
HSBC Malta announced two weeks ago that it is to close six branches by mid-March but this will not include any forced redundancies. In the summer the bank reported pre-tax profits of €50 million for the six months ended June 30, an increase of 19 per cent over the corresponding period last year.
Politically, the government was weakened by the divorce referendum outcome, by the public transport fiasco and by the actions of two of its backbenchers, Jeffrey Pullcino Orlando and Franco Debono.
Dr Pullicino Orlando’s private member’s bill on divorce led to the referendum, while Dr Debono decided to abstain on a vote of no confidence in Transport Minister Austin Gatt and to threaten to vote against the government should the Ministry for Justice and Home Affairs not be split.